Question

In: Accounting

"Taxing Multinational Transactions" The source rules determine if an income or deduction is a US source...

"Taxing Multinational Transactions" The source rules determine if an income or deduction is a US source or foreign source. Your client, Robin, is in her first year of business and is trying to get clarification on the source rules. Identify one source of income and one source of deduction and explain to Robin how its source is determined.

Be sure to explain how the allocation and apportionment process works for the deduction.

Solutions

Expert Solution

Providng two exmple of for the understandig purpose.

Example 1
Rent is a source of income that requires the application of the source rules to determine how and where the income is identified and recognized. The location of the rental property generating the income determines if the income is U.S. income or if it is foreign income.
As far as deductions for source income – taxpayers may be required to allocate or apportion allowable deduction to gross income from each geographical source to determine taxable income from U.S. and foreign sources. Allocate is defined as the process of associating a deduction with a specific item(s) of gross income for purposes of computing foreign source taxable income. Apportion is defined as calculating the amount of a deduction that is associated with a specific item(s) of gross income for purposes of computing foreign-source taxable income.
The language the IRC provides to describe how to allocate U.S. and foreign source gross income deductions is broad. Matching is done based on factual relationship, meaning deductions that can be easily identified or tried to a relatable source income are considered definitely related deductions. Those that are not are considered not definitely related deduction and are allocated to all gross income. First, taxpayers must allocate to the class(es) of gross income, they were incurred to produce. Then they apportion the deduction between foreign and U.S. gross income using a method that reflects the factual relationship between the deduction and the grouping of gross income.
Example 2
Source of Income
Salaries - Salaries are a source of income that is determined by where the service is performed. This pay is a part of the income as it is the compensation one receives in exchange for providing labor. This source of income is the exchange for proving a good or service through investing capital. Income is received in the form of wages or salaries. This form of income is subject to taxation. Salaries are part of the taxable income and tax bracket, and marginal tax rates are based on taxable income, not gross income.
Sources of deduction

Donations - A deduction is an expense that can be subtracted from an individual's gross income to reduce the amount that is subject to income tax. It is an allowable deduction. An example is a donation to any charity that is eligible to claim as a deduction; hence this donation will reduce the taxable income by the amount you donated. The standard seductions for 2019 and 2020 are almost double the previous amounts. A tax deduction reduces taxable income, and it should not be confused with a tax credit that reduces the amount of taxes owed.


Related Solutions

"Taxing Multinational Transactions" “WakeUP”, a Mississippi company that produces coffee products, sells their products throughout the...
"Taxing Multinational Transactions" “WakeUP”, a Mississippi company that produces coffee products, sells their products throughout the United States and is considering expanding its business into Europe. If so, they will have income derived from sales to US Customers and income derived from sales within Europe. Assess the impacts that selling their products abroad will have to WakeUP and any tax incentives that will apply to their situation.
Charitable Contribution Deduction Rules describe the charitable contribution deduction rules applicable to corporations.
Charitable Contribution Deduction Rules describe the charitable contribution deduction rules applicable to corporations.
2. What if the U.S. tax structure moved away from taxing income to taxing the value...
2. What if the U.S. tax structure moved away from taxing income to taxing the value a company added? Do you think Apple would prefer: (a) tax on income (at 2018 rate) (b) a Value Add Tax (VAT) (enacted in other countries and being considered for the U.S.) and/or (c) goods and services taxes (GST)?
Determine whether the following taxpayers are eligible for the QBI deduction and the deduction amount (if...
Determine whether the following taxpayers are eligible for the QBI deduction and the deduction amount (if any). Cathy is married and files a joint return with her spouse. Cathy operates a small family restaurant as a sole proprietor. She pays wages of $70,000 and the QBI from the restaurant is $100,000. Cathy’s spouse has wages of $250,000 and their joint taxable income is $364,000. Is Cathy eligible for QBI deduction? Answer yes or no If eligible, how much is the...
Martin Inc., a U.S. multinational, began operations in 2016. Martin had pretax U.S. source income and...
Martin Inc., a U.S. multinational, began operations in 2016. Martin had pretax U.S. source income and foreign source income as follows: Income earned in the US            $900,000 Income earned in Country E 200,000    Total global income                   $1,100,000    Martin paid $135,000 income tax to Country E. Compute the amount that Martin would owe the U.S. Federal government for 2016 if it takes the foreign tax credit. Assume that Martin's U.S. tax rate is 37% for 2016. * make sure you...
Special rules apply to the standard deduction of an individual who can be claimed as a...
Special rules apply to the standard deduction of an individual who can be claimed as a dependent on another person's tax return. true or false
MED MULTINATIONAL TAXATION #4 Calculate the U.S. source income where a foreign taxpayer has 4 million...
MED MULTINATIONAL TAXATION #4 Calculate the U.S. source income where a foreign taxpayer has 4 million in effectively connected income, 5 million in fixed and determinable, annual or periodic income and 8 million in other net income.
1. Global taxing jurisdictions continually face the problem of transfer pricing for multinational corporations. Mangers endeavor...
1. Global taxing jurisdictions continually face the problem of transfer pricing for multinational corporations. Mangers endeavor to lower their corporate tax burden by shifting income to favorable tax havens. What do you believe is a good proposal that will address the needs of both the taxing jurisdictions and managers as they work to minimize the problem of transfer pricing?
Is " qualified business income deduction" the same as "Itemized deduction", and do you feel C...
Is " qualified business income deduction" the same as "Itemized deduction", and do you feel C Corporations should quality for this deduction.
1)Please list in the order of benefit: Credit, Itemized deduction, Deduction to Adjusted Gross Income
1)Please list in the order of benefit: Credit, Itemized deduction, Deduction to Adjusted Gross Income
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT